The unicorn product for first-time HMO landlords is now an option!!
There will always be some sacrifices with your first HMO as a first-time landlord.
But now, achieving a hybrid or yield-based valuation is not one of them!
We now have an option, with a competitive interest rate and terms.
This is really a game changer for your first project.
As always, please give me a call and I can talk through the figures and see how it can all work.
I am often asked to ‘fix’ issues that have come about from clients not using the right mortgage, and it is sometimes pretty tricky to do. So I thought I’d run through some examples of things you shouldn’t do as a property investor…
This sounds like an obvious one, but you would be surprised how much it comes up!
Yes, there are some tax advantages to buying your home over an investment property – but that doesn’t mean you should do it!!
Once you have lived in a property (or your credit file looks like you have) it can be difficult to obtain a BTL mortgage on it, particularly if it’s an HMO.
So please don’t do it!!
This is probably the most common mistake I see made by investors.
You’re going against the terms of your loan. The lender won’t like it and may not want to work with you again.
If you are looking to refinance and you haven’t let your property out then the new lender will see this on your bank statements and it could present a problem.
There are many types of solicitors, each with their own specialism – and bridging/development is very different from residential mortgages!
Using the wrong solicitor can stop your mortgage from completing, so it’s really important you get the right person for the job.
Some lenders will allow you to use the same solicitors to act for them and you, saving you time and money so check if you can do this before deciding who to use.
We have had a few cases recently where the client has paid for a valuation or received an offer before realizing that the product they are looking at doesn’t work.
This may be because the rate is too high, it doesn’t release enough inquiries or the terms just don’t seem right.
It’s important to know that you are working with a broker who does that type of business and ask for examples of previous cases.
It’s expensive to swap halfway through!!
so please speak to us (or a broker who does lots of what you are looking to do) before you start.
and if it sounds not quite right, then it probably is!!
Ryan came to me in August last year with a property he wanted to convert to an HMO. It easily converted to a 6 bed but had an option as a 7 bedroom with a rear extension. He didn’t have planning before the purchase, and only had funds available for the 6-bedroom option due to other commitments.
So we had to think outside the box a bit!
The first part was simple; we arranged a bridge for the purchase of the property with the intention of converting it to a 6-bedroom HMO. Ryan had the funds for this, and it didn’t require planning so the lender was happy too. We were able to lend 75% of the purchase price and Ryan funded the refurbishment.
When the refurb was almost finished, planning was approved for both the rear extension and the change of use to a 7-bedroom HMO.
We used the same lender as the original bridge to refinance into another bridge to raise funds for this. This meant a reduced arrangement fee, valuation, and legal costs. It allowed the client to raise an additional £80,000 for the work (and also gave him the deposit to purchase another property!)
Another big advantage of this structure is that the lender could see that the client had followed the correct process. Ryan didn’t push the boundaries of what you are allowed to do on the original bridge and therefore wanted to keep him as a client.
Through the relationship we have with this bank, we were able to ensure the refinance was a smooth process with the same lender. Again this meant a reduced arrangement fee, valuation, and legal costs. We were able to lend 75% of the market value, and use a commercial valuation.
Purchase price £135,000
Initial refurb cost: £85,000
Valuation at the first refinance: £260,000
Additional refurb costs: £30,000
End value: £300,000.